The results are in and already causing shockwaves across the world. Approximately 17 million people voted for Leave, Nigel Farage hopped gleefully from TV interview to TV interview (quickly establishing the £350m a week pledge to the NHS was ‘a mistake’) and David Cameron has said he will step down.
Immediate uncertainty seems a given – in the opening minutes of trade, the LSE fell more than 8% and homebuilders (Persimmon and Taylor Wimpey were down 24% each) and banks were really feeling the hit (Barclays and RBS fell around 30%). The FTSE 250 dropped 11.4%, its worst decline on record. Earlier on, the value of the pound also plunged as the referendum decision became clear. At one point it was $1.3305 – a low not seen since 1985.
The currency's weakness was seen across the board - declining 16% against the yen and 7.2% against the euro.
So where did it go wrong?
At MT’s Future of Work conference yesterday, Martin Sorrell suggested that the Remain campaign made one crucial error. ‘The Remain campaign stayed totally focused on the economy and I think if I can be so bold, that was a mistake,’ he said. ‘This is not a general election, this is a referendum. The advisers to the Remain campaign suggested the economy was the only issue the Remain campaign should focus on and not sovereignty or immigration and that was a strategic mistake. It was a fundamental misunderstanding of this referendum – it’s not just an economic issue, it’s an emotional issue.’
A Conservative party in turmoil?
Cameron has said, ‘The British people have made a very clear decision to take a different path and as such I think the country requires fresh leadership to take it in this direction.’ Many are expectantly waiting the Chancellor to follow suit and step down too.
The result has already been celebrated by far-right parties across Europe, including Marine Le Pen’s National Front (who changed her profile picture on Twitter to the Union Jack). And Labour’s Lord Mandelson has predicted the Conservatives will continue to swing right. ‘The right wing now have the upper hand and that’s the direction in which the Conservative party are going to go,’ he said.
‘Goodness knows what happens to the Conservative party,’ Sorrell told MT bluntly. And of course a Brexit will have wider ramifications across the political sphere too. ‘When I was listening to Nicola Sturgeon, she made it clear Scotland would be an independent country operating in Europe,’ Sorrell added. ‘We could be back at the referendum polls sooner than we thought in the case of Scotland.’
Understanding Article 50
The guidance for how an exit from the EU in Article 50 of the Treaty of Lisbon should be navigated is pretty brief. Cameron wants the next leader to take on the responsibility of triggering Article 50 – making it a formal declaration of the intent to withdraw. But it’s likely the rest of the EU will want the UK to get on with it to prevent uncertainty lingering longer, so next week’s meeting between Cameron and his counterparts at a European Council summit will reveal who wins that tussle.
Once Article 50 is triggered, it starts a two year countdown and after that the Treaties will no longer apply to Britain. The terms of exit will be negotiated by the 27 members (and each will have a veto).
Carney tries to calm the nation’s nerves
Amid many jitters, Mark Carney has tried to be a voice of reason and rationale. Market volatility can be expected he said, but the governor of the Bank of England stressed, ‘We’re prepared for this.’ He added that it will take some time for the UK to build new relationships with the EU and the world. But the Bank of England ‘will not hesitate to take additional measures as markets adjust.’
What are businesses waiting for?
Most economic experts have predicted that the value of the pound will take a hefty hit in the medium term. So buying from other countries will become more expensive, inflation will rise and what the UK sells to other countries will become cheaper.
There could yet be barriers to trade in the form of higher tariffs when Westminster and Brussels have negotiated an exit. A question mark lingers over the single market too – the likes of Michael Gove and Nigel Farage want to wash their hands of it entirely, as it would involve accepting free movement of labour and unlimited immigration from the EU.
Establishing the new trading relationship will be a challenge though – EU leaders have claimed settling agreement on this could take another five years. Businesses of course want the easiest terms possible to halt economic disintegration; political leaders however, will likely want harsh conditions to serve as a deterrent to other member states.
Uncertainty is the word of the day and it’s likely to stay so for the foreseeable future, until the EU's stance becomes clear and it's established who will take the lead on Britain’s side.